REGULATIONS INHIBITING THE CONSTRUCTION OF NEW REFINERIES

November 15, 2007

Emissions controls, mandates for gasoline blends and alternative fuel requirements have forced many refineries to close and have made building new ones extremely difficult, say D. Sean Shurtleff, a student fellow and H. Sterling Burnett, a senior fellow with the National Center for Policy Analysis.

Clean Air Act amendments in 1990 and 1997 required refineries to limit emissions of air pollutants and to make cleaner reformulated fuel. This forced refiners to install expensive pollution-control technology when they modified existing plants. These air quality gains carried a high price tag:

Throughout the 1990s, nearly 25 percent of the capital investment in refineries was to comply with environmental regulations.

Between 1992 and 2001, the oil industry spent more than $100 billion to bring oil refineries into compliance with environmental regulations.

Clean air regulations have also discouraged the construction of new facilities:

When developers initially planned to begin construction of a new refinery in Arizona in 1997 it would have been the first new refinery built in 20 years.

But concerns regarding its impact on air quality and the proposed site of the plant have delayed construction even after the plant received the required air permits.

Now, even under the best circumstances, construction will not start until 2008 and the plant will not be operational until 2011.

Arguably, the trade-off between air quality and higher costs for domestic refineries was worthwhile. However, air quality has improved enough that air pollution doesn't threaten public health -- even in the most polluted cities and regions. Despite this, the Environmental Protection Agency (EPA) is considering imposing a stricter ozone standard that would be lower than the natural background level of ozone in some areas. The new standard would make it almost impossible to expand capacity at existing refineries or to build refineries in new locations without violating the ozone standard, say Shurtleff and Burnett.